Different types of Share capital

Meaning of share capital

Share capital is the sum of money received by a company by selling its shares to the investors. When a company issues fresh share to the investors and raises fund, it directly increases the value of share capital.

The amount of total share capital cannot be more than the amount of authorized share capital of a company. Increase in market price of shares does not affect the value of share capital because share capital is calculated based on the par value of shares and not on the basis of market price.

Share capital is shown on the balance sheet of a company.

Types of share capital

Authorized share capital:

Authorized share capital refers to the total capital that a company is authorized to accept from investors by issuing shares. In simple terms, a company cannot raise capital more than its authorized capital.

It represents the capital with which a company is registered that’s why it is also known as ‘registered capital’.

Issued share capital:

It represents that part of total authorized share capital which has been issued by a company for subscription by investors. Usually, companies do not issue all of their shares for control purpose. Thus, the part which is issued represents the issued share capital.

Subscribed share capital:

It refers to that part of issued share capital, which has been subscribed by investors. It means when a company issues shares to raise capital, it may or may not receive subscriptions for all of its shares. The part of issued share capital for which subscription has been received is known as subscribed share capital. So subscribed share capital can be equal to subscribed share capital but not more than that.

Called up share capital:

A company collects the full amount of share price in more than one lot. The part of subscribed share capital which has been asked for payment represents called up share capital.

Paid up share capital

It represents that part of called up share capital which has been paid by investors.

Paid up capital = Called up capital – Call in arrears.

Example:

Suppose ABC Ltd. is registered with a capital of Rs 1 crore divided into shares of Rs 10 each. It issues 8 lakh shares to raise a fund of Rs 80 lakh but investors subscribe for 6 lakh shares. The company calls for Rs 4 per share out of Rs 10 (Nominal value of shares) and it receives payment for only 5 lakh and 50 thousands shares.

Now,

Authorized share capital (10 lakh shares of 10 each) = 1 crore

Issued share capital (8 lakh shares of 10 each) = 80 lakh

Subscribed share capital (6 lakh shares of 10 each) = 60 lakh

Called up share capital (6 lakh × 4) = 24 lakh

Paid up share capital (5 lakh and 50 thousand × 4) = 22 lakh

Call in arrears (50 thousand × 4) = 2 lakh

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Vikas Yadav is the chief author at Monetary Section. He is an MBA (finance) from NCU Gurgaon. He started his career in 2014 and at the same time he started this website. He is young enthusiast who loves to educate people about finance. To reach out to the people from all territories, he chose internet as a medium.